Question
Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. Its trucking company charges Prefab $400 per shipment, independent of the quantity purchased.
Prefab, a furniture manufacturer, uses 20,000 square feet of plywood per month. Its trucking company charges Prefab $400 per shipment, independent of the quantity purchased. The manufacturer offers an all unit quantity discount with a price of $1 per square foot for orders under 20,000 square feet, $0.98 per square foot for orders between 20,000 square feet and 39,999 square feet, and $0.96 per square foot for orders greater than or equal to 40,000 square feet.
Prefab incurs a holding cost of 20 percent. What is the optimal lot size for Prefab?
What is the annual cost of such a policy?
What is the cycle inventory of plywood at Prefab?
How does it compare with the cycle inventory if the manufacturer does not offer a quantity discount but sells all plywood at $0.96 per square foot?
All Unit Discount
Fixed cost per order | per order | |
Monthly demand | sq feet | |
Holding percentage | % |
Pricing
min Qty | max Qty | Price per sq ft |
0 | 19,000 | |
20,000 | 40,000 | |
40,000 |
Range i | Q | Adjust to q | total cost |
1 | |||
2 | |||
3 |
Without Quantity Discount
Price per sq ft | Q | Total cost |
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